A retiree's ideal investment has a few certain characteristics. It needs to generate a steady stream of income, not be too risky, and have long-term growth potential as well.

One stock that meets all of these criteria is Realty Income Corporation (NYSE:O), a real estate investment trust, or REIT, that focuses on net-leased freestanding retail properties. Here's a rundown of why the company is such a great stock for retirees, as well as for investors of all ages.

Older couple, man looking at tablet and woman drinking from a mug.

Image source: Getty Images.

A steady stream of income

Like most REITs, Realty Income pays an above-average dividend yield, which is about 4.5% based on its current stock price as of this writing. Perhaps even more impressive is the fact that Realty Income has made 565 consecutive monthly dividend payments, has increased its payout for the past 79 quarters in a row, and has grown its dividend at a 4.7% annualized rate since its 1994 NYSE listing.

This steady income stream is made possible by Realty Income's net lease structure, which if you aren't familiar, is a type of real estate lease that requires tenants to cover property taxes, building insurance, and pay for certain maintenance expenses. Not only does this eliminate most of the variable expenses of property ownership, but these leases also have long initial terms (15 years or more), with annual rent increases, or escalators, built right in. All Realty Income needs to do is get a tenant in place and enjoy years of steady, predictable, growing income, which is then passed on to shareholders.

It's not too risky

While many investors associate anything involved with the brick-and-mortar retail industry with a higher level of risk, this simply isn't true in Realty Income's case.

For starters, consider the types of tenants in Realty Income's properties. The company focuses on three main types of retail:

  • Non-discretionary retailers like drug and grocery stores tend to be recession-resistant.
  • Service-oriented retailers like theaters and fitness centers are naturally resistant to e-commerce competition.
  • Low-price retailers like dollar stores and wholesale clubs are not only e-commerce and recession-resistant, but many actually do better during tough times as consumers become more bargain-conscious.

Over 90% of Realty Income's retail tenants fit into one or more of these three categories.

Because of the rock-solid retail businesses that occupy its portfolio, combined with its long-term net-lease structure, Realty Income's portfolio is 98.5% occupied, and has never dropped below 96% no matter what the economy was doing.

In addition, Realty Income's portfolio is well diversified. The company's 5,028 properties are spread throughout the United States, and are occupied by tenants in a variety of retail industries. Only five of the company's tenants make up more than 3% of the total rent, and the top tenant (Walgreens) accounts for 6.7%.

It's also important to mention that only about 80% of Realty Income's portfolio is occupied by retail tenants. There are also significant industrial and office property holdings, which serves to further diversify the revenue stream. These are primarily occupied by investment-grade tenants like FedEx, Boeing, and General Electric, to name some of the largest.

Long-term growth potential

Finally, consider that Realty Income is a total return investment, which means that not only is it focused on producing a steady, growing income stream, but it also aims to deliver share price appreciation over time as the values of its underlying properties increase.

In fact, since its 1994 NYSE listing, Realty Income has averaged total returns of 16.4% per year, an incredible rate of return to keep up for well over two decades. From a long-term perspective, this translates into more than four times the S&P 500's total return during the same period.

O Total Return Price Chart

O Total Return Price data by YCharts.

For best results

Realty Income is an ideal stock for retirees, and is an especially good stock to own in a tax-advantaged retirement account like a traditional or Roth IRA. It is also a long-term investment, and should be approached as such. If you're going to need the money within a few years, you're probably better off looking elsewhere.

The bottom line is that Realty Income has the attributes that make for an ideal investment for retirees, and it also has the long-term compounding power that is ideal for younger investors' portfolios as well.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.